Gulf Arab States Push to Develop Their Own Defense Industries (excerpt)

(Source: Dow Jones Newswires; posted March 29, 2017)

Wealthy Gulf Arab states have a warning for Western suppliers of military equipment: If they want business, they have to transfer technical knowledge to local companies that are part of a rising, home-grown defense sector.

Saudi Arabia and the United Arab Emirates, with troops fighting in neighboring Yemen and participating in allied air strikes against Islamic State, already have some of the region's most advanced forces. But they are limited in their ability to maintain and repair sophisticated military equipment -- let alone manufacture it.

The rulers want to become l ess dependent on the U.S. and other Western countries, and they see defense as a sector that can help diversify their oil-based economies.

The Saudi government, the world's No. 3 defense spender after the U.S. and China, last year announced it wants half the money it allots for military equipment to go to local firms by 2030, up from 2% today.

Even if the kingdom only partly achieves its goal, the impact will reverberate through the global defense industry. In 2015, Saudi Arabia military expenditures totaled around $87.2 billion, according to the research firm Stockholm International Peace Research Institute.

"We spend more than Britain, and France, and don't have industry. We have a strong demand that we should meet inside Saudi Arabia," Saudi Arabia's defense minister, Deputy Crown Prince Mohammed bin Salman, said in a televised interview last year.

The prince added that, under new official policies, the Saudi government would agree to defense deals with foreign providers "only if they are linked to local industry."

That message is trickling down. AM General, the South Bend, Ind.-based maker of the Humvee, said in February it was starting to export commercial chassis abroad. That allows customers, including partners in the Gulf, to assemble customized versions of their armored vehicles locally.

"The bottom line is they want to spend more of their money in their country," says Nguyen Trinh, an executive at AM General.

Saudi Arabia's Advanced Electronics Company, a Riyadh-based supplier of defense equipment like signal jammers and lasers, recently entered a new partnership with Raytheon Co. for a Saudi-government contract to develop cybersecurity capabilities. Raytheon declined to comment on the contract.

Local defense firms cite the deal as evidence foreign suppliers are scouting for new or expanded partnerships. "Instead of us pulling them, they are the ones pushing -- they are approaching us," says Mohammed Al Khalifa, the vice president of AEC, which is jointly owned by British weapons maker BAE Systems and Saudi investors. (end of excerpt)